Wall Street is going back into the housing market.
Before you blow a gasket, we’re not saying that banks are rushing back into the business of securitizing and packaging risky housing loans and selling them on to investors so they can trigger a global financial crisis all over again. Aside from bundling up plain vanilla mortgages that the Federal government is willing to guarantee, that business is still dead. No, Wall Street really wants to buy houses—as in free-standing structures used to shelter human beings. Private equity firm and massive real estate owner Blackstone Group has been pouring cash into the market faster and faster lately, Bloomberg reports:
Blackstone has spent more than $2.5 billion on 16,000 homes to manage as rentals, deploying capital from the $13.3 billion fund it raised last year, said Jonathan Gray, global head of real estate for the world’s largest private equity firm. That’s up from $1 billion of homes owned in October, when Blackstone Chairman Stephen Schwarzman said the company was spending $100 million a week on houses…Blackstone is the largest investor in single-family homes to manage as rentals, acquiring properties in nine markets, from Miami to Phoenix, where prices surged 22 percent in the 12 months through October. The firm, along with Thomas Barrack’s Colony Capital LLC and Two Harbors Investment Corp. (SBY), is seeking to transform a market dominated by small investors into a new institutional asset class that JPMorgan Chase & Co. (JPM) estimates could be worth as much as $1.5 trillion.
Blackstone does seem to be picking up the pace quite a bit. It was just a month ago that the New York Times reported that Blackstone had spent $1 billion on 6,500 homes. In fact, Bloomberg notes that Blackstone is in talks to double the $600 million line of credit it has from Deutsche Bank to carry out its plans. To our mind, that minor footnote to the story is really important. Here’s why.
Since the financial crisis and recession struck the US in 2008, there has been very little sign of demand for money. People—investors, individuals, corporations—didn’t want loans because the economy was, or at least appeared, to be a downright dismal place. But as we’ve told you, demand for money is picking up. And that is a very good thing for the US and global economy.